INCOME TAXES

12 Months Ended

Dec. 31, 2024

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 16. INCOME TAXES

The Company is treated as a United States corporation for U.S. federal income tax purposes under IRC Section 7874 and is subject to U.S. federal income tax on its worldwide income. However, for Canadian tax purposes, the Company, regardless of any application of IRC Section 7874, is treated as a Canadian resident company (as defined in the Income Tax Act (Canada) (the “ITA”) for Canadian income tax purposes. As a result, the Corporation is subject to taxation both in Canada and the United States.

Income Tax Provision

The components of the income tax provision include the following for the years ended December 31:

	2024		2023		2022
	(in thousands)
Current:
Federal	$	174,962	$	121,722	$	141,582
State	33,001		46,808		38,633
Total current tax expense	$	207,963	$	168,530	$	180,215
Deferred:
Federal	$	(18,014)	$	(15,755)	$	(17,814)
State	7,640		(1,417)		979
Foreign	—		—		—
Total deferred tax expense	$	(10,374)	$	(17,172)	$	(16,835)
Total income tax expense	$	197,589	$	151,358	$	163,380

A reconciliation of the Federal statutory income tax rate percentage to the effective tax rate is as follows for the years ended December 31:

	2024			2023			2022
	(in thousands)
Income (loss) before income taxes	$	42,714		$	(284,537)		$	(19,238)
Federal statutory rate	21.0		%	21.0		%	21.0		%
Theoretical tax provision (benefit)	$	8,970		$	(59,753)		$	(4,040)
Effects of tax rates in foreign jurisdictions	$	(451)		$	15		$	16
State taxes	(4,526)			835			14,598
Changes in state tax rates	13,341			5,772			4,763
Change in state tax filing methods	(7,509)			—			—
Uncertain tax position, inclusive of interest and penalties	155,362			130,481			146,702
Change in valuation allowance	6,655			2,962			1,647
Other	380			151			(4,793)
Tax effect of non-deductible expenses:
Goodwill impairment	—			64,594			—
Excess compensation	7,140			12			—
Stock compensation	(7,291)			1,170			169
Legislative campaign contributions	24,761			4,401			4,318
Non-controlling interest	757			718			—
Total non-deductible expenses	$	25,367		$	70,895		$	4,487
Total income tax provision	$	197,589		$	151,358		$	163,380
Effective tax rates	462.6		%	(53.2)		%	(849.3)		%

Deferred Income Taxes

Deferred income taxes consist of the following as of December 31:

	2024		2023
	(in thousands)
Deferred tax assets:
Lease liabilities	$	3,736	$	2,623
Finance liabilities	28,433		27,695
Net operating losses	16,839		10,098
Inventory reserves	5,657		4,667
Other deferred tax assets	6,247		759
Total deferred tax assets:	$	60,912	$	45,842
Deferred tax liabilities:
Right of use assets	$	(3,405)	$	(2,356)
Intangible assets	(218,970)		(221,743)
Property and equipment	(18,870)		(19,150)
Total deferred tax liabilities:	$	(241,245)	$	(243,249)
Valuation allowance	(16,212)		(9,557)
Net deferred tax liability	$	(196,545)	$	(206,964)

Realization of deferred tax assets associated with the net operating loss carryforwards is dependent upon generating sufficient taxable income prior to their expiration. A valuation allowance to reflect management's estimate of the net operating loss carryforwards that may expire prior to their utilization has been recorded as of December 31, 2024. The following table outlines the changes in the valuation allowance for the years ended December 31:

	2024		2023		2022
	(in thousands)
Balance, beginning of year	$	(9,557)	$	(6,596)	$	(6,826)
Charged to costs and expenses	(6,655)		(2,961)		230
Balance, end of year	$	(16,212)	$	(9,557)	$	(6,596)

As of December 31, 2024, the Company had $15.2 million of non-capital Canadian losses which expire from 2031 to 2044, $697.7 million of state net operating losses which expire from 2038 to 2044, $15.4 million of state net operating losses which have an indefinite carryforward period, and $119.8 million of U.S. federal net operating losses which have an indefinite carryforward period. The Company determined a valuation allowance was applicable to $15.2 million of non-capital Canadian losses, $10.1 million of US federal net operating losses, and $199.7 million of state net operating losses. The Company also determined that it is more likely than not that the benefit from $27.9 million of U.S. federal net operating losses and $371.6 million of state net operating losses will not be realized and therefore this amount has not been recorded.

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits:

	2024		2023
	(in thousands)
Balance, January 1	$	542,762	$	41,781
Reductions based on lapse of statute of limitations	—		(1,053)
Reductions based on tax positions related to the prior years	(2,957)		—
Reductions based on refunds still outstanding	(46,696)		—
Additions based on tax positions related to the current year	129,558		152,313
Additions based on refunds requested but not received related to prior year	—		111,664
Additions based on refunds received related to prior years	52,001		62,391
Additions based on tax positions related to the prior year	—		175,666
Balance, December 31	$	674,668	$	542,762

The Company and certain of its subsidiaries are currently under examination by the relevant taxing authorities for various tax years. The Company does not reasonably expect the potential outcomes of these examinations to materially change the amount of unrecognized tax benefit over the next 12 months. With few exceptions, as of December 31, 2024, the Company is no longer subject to examination by tax authorities for years before 2020.

Uncertain Tax Positions

The IRS has taken the position that cannabis companies are subject to the limits of Internal Revenue Code ("IRC") Section 280E for U.S. federal income tax purposes. Under the IRS's interpretation of IRC Section 280E, cannabis companies are only allowed to deduct expenses directly and indirectly related to the production of inventory. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E.

The Company has taken a position that Section 280E does not preclude it from deducting ordinary and necessary business expenditures on its tax returns. As of December 31, 2024 and December 31, 2023, the Company recorded an uncertain tax liability in the consolidated balance sheets that reflects this tax position.

A reconciliation of the beginning and ending amount of uncertain tax position liabilities:

	2024		2023
	(in thousands)
Balance, January 1	$	180,350	$	19,459
Reductions based on lapse of statute of limitations	—		(1,053)
Additions based on tax positions related to the current year	150,014		139,914
Additions based on tax positions related to the prior year	1,256		113,815
Additions based on refunds received related to prior years	52,001		62,391
Reclass tax payment on account	35,998		(157,063)
Interest recorded in income tax expense, net of reversals (1)	25,602		3,150
Penalties recorded in income tax expense, net of reversals (1)	—		(263)
Balance, December 31 (2) (3) (4)	$	445,221	$	180,350

(1)Amounts represent the interest and penalties recorded on uncertain tax positions during the respective years which are recorded in the provision for income taxes on the condensed consolidated statements of operations.

(2)The Company has taken a position that IRC Section 280E does not preclude it from deducting ordinary and necessary business expenditures on its tax returns. As of December 31, 2024, $412.6 million is related to this tax position. This amount does not include $121.1 million of previous tax payments for which the Company has claimed overpayment related to this tax position.

(3)The $264.9 million increase in uncertain tax positions is primarily due to receipt of $52.0 million in refunds in the current year, as well as $150.0 million current year accruals, each related to tax positions based on legal interpretations that challenge the Company's tax liability under IRC Section 280E.

(4) The ending balance includes accrued interest and penalties totaling $32.0 million and $6.4 million as of December 31, 2024 and 2023, respectively.